Opportunity cost

Definition

Opportunity cost refers to the value of the next best alternative that must be forgone when making a choice between two or more options. It represents what you give up in order to choose something else.

Related terms

Trade-off: A trade-off occurs when choosing one option requires sacrificing another option. It involves weighing different benefits against each other.

Marginal cost: Marginal cost refers to the additional cost incurred from producing or consuming one more unit of a good or service.

Sunk cost: Sunk costs are costs that have already been incurred and cannot be recovered. They should not be considered when making future decisions.